There was an interesting paper discussed in the NYT Economix Blog that was just released called “Housing, Monetary Policy, and the Recovery” that provides some context to understanding how much housing is preventing a more robust economic recovery.
What is interesting about this research is the idea that not only did the economy get crushed by the housing crisis, but the fact that the recovery is being delayed because of the legacy of bad lending decisions that created the run-up in housing prices.
Low interest rates just aren’t cutting it anymore – in order to gain traction with the consumer, the study indicates that rates would have to be inverted – that lenders would need to pay borrowers. Crazy.
The pace of recovery since the financial crisis has been less than half as fast as after the last two major recessions, which ended in 1975 and 1982. In first 10 quarters after those recessions, the economy grew by 13.4 per cent; in the wake of this recession, the economy grew by only 6.2 per cent.
And, the paper says, “more than half the underperformance in this recovery is associated with housing-related sectors.”
No shortage of charts in the paper – here’s a couple that jumped out at me: